Public Bill Committee

[Mr. Roger Galein the Chair]

Clause 10

Additional pension: removal of accrual band from 2010-11

Amendment proposed [this day]: No. 64, in clause 10, page 12, line 15, at end add—
‘(7) The Secretary of State shall publish estimates, no later than 1st April 2008, of how many people he expects to receive less than £135 a week in Basic State Pension and Second State Pension combined in 2030 and 2050.’.—[Mr. Laws.]

Question again proposed, That the amendment be made.

James Purnell: It is a pleasure to serve under your chairmanship this afternoon, Mr. Gale. I said in our previous sitting that I hoped today to provide the hon. Member for Yeovil with the figures that he has asked for in the amendment—I hope to his satisfaction—and therefore to remove the need to legislate to provide them at a later stage.
In choosing £135, the hon. Gentleman picks a key amount, to which we have referred in our publications on the issue. We have alighted on the figure of £135 because it is our current estimate of what a low earner in 2053 who has had a good working life would achieve by way of state pension, by working and/or caring. To be clear, we have assumed that a good working life would mean someone working or caring from the age of 25 to state pension age. In describing the objectives of the new state pension, we have focused on a couple of key amounts. The first is our estimate of the number of people who, at the point of retirement, will be clear of the standard minimum guarantee of about £114 in the 2050s. The second amount is the minimum amount that will be received by someone who has been working or caring for a good part of their life.
Those amounts are important, because they help to underpin the key objective of the state pension reforms, which is to provide a solid foundation for private saving. Making pension saving worth while to the point at which it is a routine part of organising personal finances depends on giving people decent returns on their investment. We have shaped the reform system to meet just that objective.
By extending the coverage of the basic state pension and the state second pension, the number of people building the foundation will increase and by increasing the state pension by earnings, we will preserve the value of the foundation. By simplifying the system, we will make it transparent, so that people can understand what they will get and, as importantly, will not take kindly to anyone trying to take it away from them in the future.
Just using the current information, and without taking account of greater employability or a fitter work force, I can give the hon. Gentleman the following information, in response to the questions that he sought to elucidate. Around 60 per cent. of those reaching state pension age in 2030 will receive at least £115 a week just from the basic state pension and the state second pension. More than 40 per cent. of those reaching state pension age in 2030 will receive £125 or more in their basic state pension and state second pension, and more than 30 per cent. of those reaching that age in 2030 will receive £135 or more in their basic state pension and state second pension. Those figures are of course not the same as the means-tested proportion of the pensioner population, because people would also have private savings and other forms of income on top of that. We forecast that in 2050 around 75 per cent. of people will retire on an income of more than £115 a week just through their state pension entitlement and that a quarter of pensioners will retire on a state pension of £140 or more in 2050.
Rather randomly, I do not have the relevant figure to give the hon. Gentleman for the £135, but I shall ensure that I give it to him in writing as soon as I have it available.
Given that the Department for Work and Pensions has produced significant material, as part of our long-term projections and continual assessment of the pensions system, and that that information will be made available in the normal way—including through any future parliamentary questions that the hon. Gentleman might seek to table—I urge him to withdraw the amendment.

David Laws: Welcome back to the Chair for this afternoon’s proceedings, Mr. Gale. You will be delighted to see that we have positively leapt forward since we last saw you, in terms of the number of clauses we have covered.
I am grateful for the Minister’s response, which, apart from a missing figure—or rather, perhaps a missing page of his speech—was extremely helpful. For that reason, I do not need to press the amendment to a Division, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: Welcome back, Mr. Gale. I am not sure whether it is easier for me to set out my concerns and then for the Minister to deal with them, or for him to set out what the clause is about and then for me to comprehensively rubbish what he has said, but let us try this way round.
We are grateful to the Minister for taking us through the enchanted forest of low earnings thresholds and lower earnings limits. We are now on flat-rating S2P—no wonder nobody understands pensions in the real world. To assist the Committee to make good progress it might help to say that my comments will cover aspects of clauses 10, 11 and 12 together. That should obviate any significant discussion of the subsequent two clauses.
The first point is the redistributive nature of this part of the reform package, which is something that the Government, for obvious reasons, did not trumpet themselves—we had to draw it out in our examination of their proposals. That was thrown into sharp relief by the amendment of the hon. Member for Northampton, North, which sought to go even further than the Government in terms of redistribution.
In fairness, these proposals come on top of reforms made shortly after the Government were first elected, which were redistributive in nature. As I say, the hon. Member for Northampton, North and her group of amendments have shown that there is an appetite, at least from Labour Back Benchers, to go even further than proposed. Back in 1998, the Government’s Green Paper, “A new contract for welfare: partnership in pensions”—Green and White Paper titles really roll off the tongue—made it clear, in fairness, that they always intended in the long run that S2P should cease to be earnings-related and become a flat-rate scheme. The Child Support, Pensions and Social Security Act 2000 contains a regulation-making power to that end. This is one of those occasions when explanatory notes are probably more revealing than the legislation itself. The Library research paper points out that
“the explanatory notes on the Act”—
that is the 2000 Act—
“explain that the Regulations will not be made until stakeholder pensions have established themselves”.
As the Library brief goes on to say with admirable understatement:
“However, stakeholder pensions have not been as successful as the Government hoped in attracting the target market of moderate earners”.
It is worth noting in passing that this reform package—the basic direction of travel of which we, on these Benches, support—signals the last rites for stakeholder pensions. That is an experiment that has clearly failed in terms of encouraging greater participation.
As the Minister will I am sure go on to explain again, the subsequent clause and schedule 2 bring in a weekly rate of £1.40 on deemed earnings below the low earnings threshold. I am told that that figure is designed to be cost-neutral. Concerns have been expressed by outside bodies. The TUC has advised caution about moving to flat-rating S2P too quickly and has said:
“We suggest that before any final decision is taken on reforming the S2P into a flat-rate weekly top-up, the NPSS”—
that is personal accounts—
“should be up and running, and have been subject to an independent review of levels of opt-outs and contribution rates.”
Our old friends at the NPC have also expressed concerns and talked about
“the decline in availability and weakening of private occupational pension schemes”,
which is something that in any view has happened on this Government’s watch. The NPC have also said that that
“underlines the necessity for the second-tier state pension to be strengthened and made more inclusive...it offers defined and predictable benefits, low administrative costs”.
The NPC also talk about the “burden of savings risk” being placed on the individual. Moving beyond that, the Pensions Policy Institute, of which we shall hear more when we get to the great means-testing debate, in its pamphlet, “State pension simplification?” makes the point that there will still be some significant differences between S2P and the basic state pension. It lists four differences:
“S2P may not become flat-rate for all individuals until 2030”—
The Minister may want to come back on that point—
“Some people may qualify for BSP but not S2P, for example, the self-employed.
S2P will still be uprated in line with prices when it is payment”,
while as we have heard BSP in due course will be
“uprated in line with earnings”,
and
“Some of S2P will be delivered by private pensions, through contracting-out”.
The Pensions Policy Institute goes on to say that
“there will still be uncertainty as to the amount of S2P that individuals will receive. Amounts of S2P in payments to individuals will still vary according to lifetime characteristics, and by age”.
It refers to a specific example:
“a woman with exactly the same contribution record as her younger sister will receive less S2P each year than her sister does”.
It concludes by saying that
“many of the differences that currently exist between BSP and S2P will remain”.
If that is in part designed to be a simplification measure, there are concerns from the PPI about whether that will deliver a great deal of extra simplicity. 
As I said in my intervention on the hon. Member for Northampton, North, we have referred to the problem of those people—anyone earning over £18,000 a year, as I understand it—who will still continue to pay national insurance contributions at the same level even though the amount that they get from S2P will be significantly reduced. The hon. Lady, with admirable honesty, asked whether it was better that the money should go to people who were poorer. There is a philosophical argument there that I am not going to approach. I respect her position from an intellectual point of view, but is that the Government’s position and may we hear something from the Minister about the redistributive nature of the proposals?
We have done some figures but I am always open to correction on figures from the Minister as he has all the clever people working for him. We estimated that by 2033 someone earning more than £35,000 a year would be paying £2,119 in national insurance contributions for a pension benefit that they would no longer receive; and someone on £18,000 a year would be paying £468 a year for the same lack of benefit.
When that was put to the Department at the time we made an issue of that point and an unnamed spokesman for the Department said that this loss would be partly compensated by an increase in the basic state pension. I accept and can understand that, but it is always interesting to dive into the Government’s regulatory impact assessment.

Sally Keeble: If the hon. Gentleman is going to set out what people do and do not get out of the state system in return for the money that they put in, which is a perfectly proper thing to do, will he say what income those people are likely to receive from their other pensions; and also the tax relief that they will obtain on the contributions to their private pensions, because if we are looking at how the state supports people in retirement it is important to look at the whole picture so that we can make a judgment on the whole picture. I should be very interested to hear the other calculations.

Nigel Waterson: The hon. Lady gives me a tall order, which is beyond the scope of this clause, but there is certainly a debate to be had on whether the funds devoted to tax relief are being put to best use in terms of encouraging pension saving. I think that I am right in saying, although it may have a different purpose altogether, that there is a new amendment from the hon. Member for Yeovil on tax relief, to which we will come later, so there will be an opportunity to talk about that.
In a minute I shall come on to the Government’s figures, which split people into three indistinct groups: low earners, median earners and higher earners. I am not saying for a moment that there are not people who are better off. The basic statistics are very clear that the top quintile of pensioners is far better off in many respects than the other four quintiles—a quick bit of mental arithmetic there. That is a fact of life. If the hon. Lady wishes to tackle that reality, that is fine. If the Government wish to fight the next election on it, that is fine too, as long as they are fairly clear what they are about. If they were to do that, then “stealth tax” would be a perfectly legitimate phrase from us—although the Minister got a bit sniffy about that phrase earlier.
In the excellent regulatory impact assessment that accompanies the Bill, the chart on page 112 is significant. It helpfully compares the current system for higher earners with the reformed system, showing the basic state pension relatively constant under the reforms and a reasonably sharp decline in the value of S2P for the higher earner. The Government have said, by means of such figures, and informally to us as part of the consensus process, that no one would be any worse off. However, that is only true if one takes into account the value of the basic state pension as well. If one were to disaggregate that for some of the higher earners, they would be significantly worse off and would be paying national insurance contributions without getting the benefit.
Looking at the chart on page 112 for median earners, which is those earning £440 per week, there is an almost imperceptible falling off of overall benefit from 2010 to 2050.
Bizarrely and inexplicably, the next relevant chart is on page 42. It deals with the outcomes for lower earners, comparing the reformed system with the current system. The situation is completely the opposite of that on page 113, with a reasonably steeply increasing gradient for 2010 to 2050 under the reforms, again with the BSP element constant, and a sharply rising benefit from S2P up to the end of that chart.
Of course, there is an air of unreality about making projections up to 2050. I certainly do not expect to be doing this job then, but who knows?
Looking at some figures that we discussed with the Minister and his officials when all this was in the melting pot, again there is very much the same argument. The fixed rate of about £1.40 residual earnings-related amount would gradually erode by 2030. Everybody gains, compared with the current system rolled forward, from earnings-uprated basic and simplified second pension.
Simplification is fine, because what the pensions and benefits system cries out for at all levels is simplification, as long as people understand that simplification comes, for some of them, at a cost.
Again, abolition of the S2P and state earnings-related pension scheme rules would result in marginal reductions in second pensions for some older workers, but that is more than made up for by the earnings-uprated basic state pension. I apologise to the Minister if the projections are out of date, but some for outcomes in 2050 to 2053—including the BSP and the effects of an extra three years work—show everyone better off, but lower earners relatively much better off than higher earners. Outcomes in 2050 have a similar sort of projection.
We say to the Minister, if this is what he is doing, by all means be open and clear about what it is. May we hear not how higher earners will still be better off, but how they will fare if the increase in the basic state pension is stripped out? Perhaps he will spend a little time justifying how they can be expected to continue to pay national insurance contributions but receive little or no benefit from doing so. Those are legitimate questions. I look forward to the Minister’s response.

James Purnell: The debate goes to the heart of whether there is consensus on this aspect of the reforms. The changes stem from the reforms to the state second pension and the introduction of flat-rating, which would have happened by the 2050s in any case, and from the view expressed in the Pension Commission’s report that the Government should not be in the business of providing earnings-related second pensions and that that should instead be done through a system of personal accounts. As I understand it, the hon. Gentleman and his party back that principle, but he has a habit of complaining to the Daily Mail and the Daily Express that we are introducing a stealth tax. Indeed I think that he was quoting from our response to one of those stories.
The key part of the reform that removed the relation to earnings was the move towards the state second pension, away from the state-earnings related pension scheme. I do not think that the hon. Gentleman is proposing that we go back to that system. To do so would cost a significant amount of money: we would be talking about a cost of £10 billion a year over the long term. If that is not his proposal, I hope that he will not confuse people by making them think that he is against this part of the reforms, because I think that he supports it.
The key question is not whether we should go back to the old SERPS system, be it that which existed in the 1970s or the amended, less generous one that was brought in by the previous Government in the mid-1980s. The question is whether there should be flat-rating. The Pensions Commission was clear on that matter and I assume that the hon. Gentleman supports it as well, given that he is not intervening. People will not be any worse off under these proposals, because any savings from flat-rating will be recycled into the package of reforms.
Lest there is a further press release, I should like to set the hon. Gentleman’s mind at rest. Prior to reform, a lower earner, on wages of about £330 a week after a good working life, would have got about £89 from a combination of the state pension and the state second pension in 2053. Under these reforms, that figure will be £134. A medium earner would have got £100 before the reforms; that will now be £138. A high earner would have received £102, which will now be £139. I hope that there will be no further allegations that we are taking money away from high, medium or low earners.

Nigel Waterson: Perhaps the Minister could confirm that the figures that he is quoting, which I think are the figures that I was looking at, include two elements, namely the increase in the basic state pension and the requirement to work an extra three years.

James Purnell: Yes, that is right. The figure is for 2053. That does not change the fundamental point that all categories of earner will be better off as a consequence of the reforms. I think that the hon. Gentleman was alleging that they would take money away from higher earners, but they do not. Savings are recycled to make the combination of the state pension and the state second pension more generous.
We could have a system in which higher national insurance contributions were completely tracked only if we went back to the old, state earnings-related pension scheme. If that is the hon. Gentleman’s policy, it represents a different approach from ours and that of the Pensions Commission and is a Liberal Democrat-style spending commitment. The hon. Gentleman probably knows that but wants to preserve the impression that in some way the issue is different from how we describe it. I hope that I have answered his point.
My hon. Friend the Member for Northampton, North asked when we intended the flat-rating to come in. We intend it to start in 2030-31, in accordance with what has been predicted about the gradual moving together of the two thresholds in question, which I shall not try to specify from the top of my head. There are provisions to adjust the date if the economic trends differ from what we have predicted.
The clause restructures the state second pension by removing one of the three earnings bands used in calculating how much S2P a person has accrued in a given year. A person’s annual S2P is currently accrued by reference to earnings between the lower and upper earnings limits for national insurance contributions. This tax year, those limits are £4,368 and £33,540 respectively. As I have explained, S2P is based on the existing SERPS framework in respect of how pension entitlement is built up over a person’s working life.
The introduction of banded earnings allowed us to target additional resources on low and moderate earners. In calculating a person’s S2P accrual for a given year, earnings between the upper and lower limits of national insurance are currently split into three earnings bands, each of which builds up at a different rate. The third accrual band of 20 per cent. is a part of the transition from SERPS to S2P and is designed to erode from about 2011. The amendment would bring that forward by one year.
Removing the third accrual band is the first step towards providing a flat-rate benefit. Together with the provisions in clauses 11 and 12, to which we shall turn shortly and which would introduce a weekly cash amount of £1.40 and a fixed upper accrual point, that will enable us to achieve flat-rate accrual by 2030, as I have said. The measures are in line with the Pensions Commission recommendation. Combined with our change to the basic state pension, they will make all earnings bands better off. They simplify the system.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.

Clause 11

Additional pension: simplified accrual rates as from flat rate introduction year

James Purnell: I beg to move amendment No. 49, in clause 11, page 12, line 35, at end insert ‘and
(c) Part 3 contains consequential and related amendments.’.

Roger Gale: With this it will be convenient to discuss Government amendments Nos. 58, 56 and 60.

James Purnell: This series of technical amendments is intended to maintain the current arrangements on widowed parent’s allowance, set out in previous state second pension legislation. The allowance is paid to those widows, widowers and surviving civil partners who are under state pension age and have care of at least one child.
Currently, people receiving widowed parent’s allowance get an additional pension based on the value of their late spouse’s or civil partner’s SERPS or state second pension accruals. When the late spouse or civil partner dies before reaching state pension age, the calculation of the survivor’s additional pension takes into account the fact that the deceased’s working life had been foreshortened. That allows the deceased’s earnings to be averaged over a shorter period, to the widowed parent’s advantage. If, for example, the working life had been five years, the average would be over those five years rather than over a whole theoretical working life.
For pensioners, we intend to move away from that averaging so that we can arrive at a much simpler system—the flat rate of £1.40 that I mentioned. Pensioners will not lose out because the earnings uprating of the basic state pension more than makes up for any shortfall caused by the removal of the complexity. However, if we were to bring recipients of widowed parent’s allowance fully into state second pension reforms, there would be a chance that some younger widows, widowers or surviving civil partners would lose out overall. That is not our intention.
Our amendments will ensure that those people’s pensions will continue to be calculated on the same basis as now, and I hope that the Committee will support them.
I repeat that we do not want to change the position of widows, widowers or surviving civil partners. That is why we have taken the earliest opportunity to amend the Bill.

Amendment agreed to.

Clause 11, as amended, ordered to stand part of the Bill.

Schedule 2

Additional pension: simplified accrual rates

Amendment made: No. 58, in schedule 2, page 38, line 13, at end add—

‘Part 3

Consequential and related amendments

Social Security Contributions and Benefits Act 1992 (c. 4)

3 In section 39 of the SSCBA (rate of widowed mother’s allowance and widow’s pension) omit—
(a) “and Schedule 4A” wherever occurring; and
(b) subsection (3).
4 (1) Section 39C of the SSCBA (rate of widowed parent’s allowance and bereavement allowance) is amended as follows.
(2) In subsection (1) after “section 46(2)” insert “and (4)”.
(3) In subsection (3) in each of paragraphs (a) and (b) for “sections” substitute “provisions”.
5 (1) Section 44 of the SSCBA (Category A retirement pension) is amended as follows.
(2) In subsection (5A) for “Schedule 4A” substitute “Schedules 4A and 4B”.
(3) In subsection (6) for “Schedule 4A” substitute “Schedule 4A or 4B”.
6 In section 46 of the SSCBA (modification of section 45 for calculating the additional pension in certain benefits) after subsection (3) insert—
“(4) For the purpose of determining the additional pension falling to be calculated under section 45 above by virtue of section 39C(1) above in a case where the deceased spouse or civil partner died under pensionable age, section 45 has effect subject to the following additional modifications—
(a) the omission of subsection (2)(d), and
(b) the omission in subsection (3A)(b) of the words ‘before the flat rate introduction year’.”
7 In section 48A of the SSCBA (rate of Category B retirement pension for married person or civil partner) in subsection (4) for “Schedule 4A” substitute “Schedules 4A and 4B”.
8 In section 48B of the SSCBA (Category B retirement pension for surviving spouse or civil partner) in subsection (2) for “Schedule 4A” substitute “Schedules 4A and 4B”.
9 In section 48BB of the SSCBA (Category B retirement pension: entitlement by reference to benefits under section 39A or 39B) in subsection (5)—
(a) for “Schedule 4A” substitute “Schedules 4A and 4B”; and
(b) for the words from “subject” to the end substitute “subject to section 46(3) above and to the following provisions of this section and the modification in section 48C(4) below.”
10 In section 48C of the SSCBA (Category B retirement pension: general) in subsection (4) for “Schedule 4A” substitute “Schedules 4A and 4B”.
11 In Schedule 4A to the SSCBA (additional pension) in paragraph 1(2) omit “39(1),”.

Pension Schemes Act 1993 (c. 48)

12 In section 42 of the Pension Schemes Act 1993 (review and alteration of rates of contributions applicable under section 41) in subsection (1)(a)(ii) for “Schedule 4A” substitute “Schedules 4A and 4B”.’.—[James Purnell.]

Schedule 2, as amended, agreed to.

Clause 12

Additional pension: upper accrual point

James Purnell: I beg to move amendment No. 50, in clause 12, page 14, line 4, after ‘revoke’, insert ‘any provision of’.

Roger Gale: With this it will be convenient to take the clause stand part debate.

James Purnell: At this rate, we will have finished the Bill by the end of the afternoon.

David Laws: No, I am speaking soon.

James Purnell: Ah, that is the difference. There was a certain amount of cognitive dissonance in the back of my head, which has now, thankfully, been cleared up.
Clause 11 introduces the new method of calculation for the state second pension, which will consist of a simple flat-rate component and a residual earnings-related element. I say residual because clause 12 brings in the relevant provisions for phasing out the earnings-related element. In our debate on clause 10, I explained that S2P was originally intended to be a short-term measure to increase the pension entitlements of low earners and certain carers, which complemented the introduction of stakeholder pensions.
Let me take this opportunity to correct a slight misapprehension possibly caused by hon. Members’ remarks. We do not intend to abolish stakeholder pensions with the reforms. They have had real success in reducing charges, as we set out in our White Paper on personal accounts, and we foresee them continuing to play an important role in both personal and company pensions. We have made it clear that we plan to remove the requirement on companies to have a stakeholder pension, because it will be superseded by personal accounts.

David Laws: Is the Minister telling us that the Library is wrong in its assessment of the lack of success of stakeholder pensions?

James Purnell: We are very clear about the achievements of the stakeholder pension and we set them out in great detail in the December White Paper, which I am sure all hon. Members have read. In it, we highlight the significant reduction in charges achieved by stakeholder pensions.
As things stand, S2P will eventually become flat-rate in around 2056, when the low earnings threshold—the lower margin used for calculating earnings-related S2P: the £12,500—finally catches up with the upper earnings limit. That would have happened anyway because the former is uprated by earnings and the latter by prices. In line with the Pensions Commission’s thinking, however, we want to speed that process up so that S2P becomes completely flat-rate around 2030. To achieve that, clause 12 provides for a new cap on the earnings-related component of S2P, which we have called the upper accrual point. The changes are contained in subsections (1) to (3), which amend sections 22, 44 and 122 of the Social Security Contributions and Benefits Act 1992.
The clause also applies the upper accrual point to defined benefit contracted-out pensions. That is achieved through the measures in subsection (4) and part 7 of schedule 1, which amend both the 1992 Act and the Pension Schemes Act 1993. In its year of introduction, the level of the upper accrual point will most likely be equivalent to the upper earnings limit for that year. I say most likely because because it may be necessary to vary slightly the level of the upper accrual point to hit our 2030 flat-rate target, as I said to my hon. Friend the Member for Northampton, North.
Unlike the earnings limit, which on current trends will continue to rise each year in line with prices, the upper accrual point will be fixed. That enables the low earnings threshold, which is the top end of the band of earnings on which the flat rate element accrues, to merge with the upper accrual point much more quickly—in 2030, rather than the mid-2050s.
Clause 12 provides, in addition, the necessary sunset order-making powers to abolish both the low-earnings threshold and the upper accrual point when they eventually merge and become redundant. That is provided for in subsections (5) to (9). However, the order-making powers set out in clause 12 allow only for the repeal of a whole Act or piece of subordinate legislation. Amendment No. 50 clears that up, allowing the necessary flexibility so that it will be possible to repeal individual provisions. The repeals made by order are subject to the approval of both Houses. That process will be carried out by an affirmative order, debated in both Houses.
From around 2030, the S2P will start to accrue on a completely flat-rate basis. Of course, any earnings-related S2P and SERPS a person has accrued prior to that point will be fully preserved and paid when they retire.

Amendment agreed to.

Clause 12, as amended, ordered to stand part of the Bill.

Clause 13

increase in pensionable age for men and women

Question proposed, That the clause stand part of the Bill.

Roger Gale: With this it will be convenient to discuss the following: New clause 1—Report by Government Actuary on trends in longevity—
‘(1) Beginning in April 2014, the Government Actuary shall present a Report to Parliament every five years setting out the latest evidence on trends in longevity.
(2) It shall be the duty of the Secretary of State to make a motion in the House of Commons in relation to any report under subsection (1).’.
New clause 21—Report on older workers not paying or being credited with National Insurance contributions—
‘The Secretary of State shall present a report annually to the House of Commons—
(a) analysing, by local authority area and by job sector, the number and distribution of people over 60 seeking work and not being credited with contribution credits, and
(b) on the training opportunities for people seeking to increase the number of their qualifying years for receipt of a full Basic State Pension.’.
New clause 24—Independent Pensions Commission—
‘The Secretary of State must, no later than 1st January 2010, establish an independent Pensions Commission to—
(a) advise the Government on affordability issues in relation to state pension provision and the state pension age,
(b) conduct and publish gender, carer and state pension coverage impact assessment annually, and
(c) publish annual projections of the proportion of pensioners facing different withdrawal rates.’.
New clause 25—Job opportunities for workers over state pension age—
‘Before any increase in the State Pension age the Secretary of State shall publish a report on improved training packages and flexible job opportunities for workers over 55 years of age.’.

Andrew Selous: I welcome you back to this afternoon’s sitting, Mr. Gale.
Clause 13 is very important. It deals with the increase in state pension age. I note from the schedule in the White Paper, which helpfully sets out the ages and increases in retirement age, that in order to collect my basic state pension I will have to work until my 66th birthday. I think, if I am right about the Minister’s age, that he will have to work until his 67th birthday before he collects his basic state pension. Perhaps other Committee members should declare an interest if they choose to speak to the clause and let us know how the measures affect the age at which they will collect their basic state pension.
I believe it was Bismarck, the German Chancellor, who first picked the age of 65 as the age at which retirement benefits would be paid. I agree with my hon. Friend the Member for Eastbourne, who has said on more than one occasion that raising the state pension age is, in a sense, a no-brainer when one considers the increases in longevity that have occurred since Bismarck’s time. We must also, quite properly, bear another issue in mind when we address the clause, which is the question of inter-generational fairness.
One option would have been to load all the costs of increasing the basic state pension now on to future generations—our children and grandchildren—by sending the bill down through the generations to them so that pensioners now and in the near future could enjoy higher pensions. That would have been wrong. Virtually all of us exist in families and many of us have children or even grandchildren, so we need to bear in mind the effects of such a major change on different generations.
Returning from Germany, it is worth considering briefly the history of the pension age in this country. In 1909, I think, the Liberal Democrats first introduced pensions at the age of 70. In 1925, the age became 65 for men and women, which is the direction in which we are heading—we hope to end up there by 2020. It was not until 1940 that the age went down to 60 for women, remaining at 65 for men. In a sense we are going back to the future, to the 1925 position. Who knows? Perhaps at some point in the future we will end up back in the 1909 position. I am certainly not proposing that now, but given what might happen to longevity in the future, we might arrive at that point again.
New clause 1 contains a requirement on the Government Actuary to
“present a Report to Parliament every five years setting out the latest evidence on trends in longevity.”
It would also place a duty on the Secretary of State for Work and Pensions
“to make a motion in the House of Commons in relation to any report”.
The Government are right to point to the available statistical information, some of which has been helpfully set out in the regulatory impact assessment on the Bill, which points out that, on average, people enjoy 20 years of life expectancy after reaching the current state pension age and that that figure is expected to increase to 21 years after 2046. So far, so good. So far, so reasonable.

Nigel Waterson: Has my hon. Friend seen the most recent research suggesting that every day average life expectancy increases by five hours?

Andrew Selous: My hon. Friend, as always, is a fount of optimism, hope and good cheer, as we like to be on the Conservative Benches. I am heartened by his remarks, although there are one or two contrary indications from other bodies.

James Purnell: Does that mean that the longer the hon. Member for Yeovil speaks, the longer we all live?

Andrew Selous: The Minister is always sharp in his observations. He would not be in his current position if he was not. None the less, I am sure that we have all been enlightened by what the hon. Member for Yeovil has had to say, and no doubt we will be again when he makes his contribution.
The regulatory impact assessment on the Bill states that in 1950 only half the population reached pension age. Today, that figure is three quarters. By 2050, 90 per cent. of our fellow citizens will reach the new proposed state pension age of 68. That statistical evidence appears to be overwhelming and to justify the change in the age, which is one means by which we are paying for the extensive package of measures before us. It is interesting to note as well—this is my last observation from the regulatory impact assessment—that the Office for National Statistics does not compile projections for life expectancy by social class.
The excellent House of Commons Library brief on this subject contains some very revealing information and goes into slightly more detail than the regulatory impact assessment produced by the Department. Among other things, it tells us that men in social class I have a life expectancy of 65—five years higher than those in social class V. For woman in social class I, that figure is 3.7 years higher than for those in social class V. Do not ask me to define “class”. I shall leave that to the statisticians.
Quite staggeringly, the House of Commons Library brief also has this sentence:
“Inequalities in life expectancy at age 65 appear to have widened over time.”
That is in stark contrast to the information I have just given the Committee on the overall increase in life expectancy. It is those inequalities on which I want to focus.
There are not only variations by social class; there are striking ones by area of the country as well. In Glasgow city, male life expectancy is 69.9 years. That means that for those who come under the new state pension age of 68, the average male in the City of Glasgow would enjoy under two years of pension. Compare that to Kensington and Chelsea, which has the highest life expectancy in the country, where for males it is 82.8 years. The corresponding figures for women are in Glasgow 76.7 years and in Kensington and Chelsea, 82.8 years. The contrast is stark—both by social class and by area. Those figures are from an ONS news release from November 2006.
The most recent figures that I could find on overall life expectancy are dated 2002 from the Commons Library brief. They say that overall in the UK, women can expect to live to 84.1 years and men to 81.1 years.
The reason for going into that background in a little detail is to highlight the importance of looking at exactly what is going to happen to longevity in the UK—overall, specifically for different groups of workers and, again, in different parts of the country. My hon. Friend the Member for Eastbourne intervened just now to say that our life expectancy increased by five hours every day. That is a rosy prospect and one that I am sure we all look forward to. Just to inject a slight note of caution, I note in the report of the Work and Pensions Committee entitled “Pension Reform”, its fourth report of the session 2005-6—perhaps my hon. Friend the Member for Weston-super-Mare was a Member of that Committee and he will comment on it later—that in paragraph 382 on page 99, the National Heart Forum said, looking at the changes in lifestyle of younger people, that we may actually see decreases in life expectancy. We are all aware of the current debate on obesity—in childhood in particular—and we all know the impact on diabetes and other medical conditions which concern everyone. It is therefore not certain that increases in life expectancy will continue as they have been recently.
So it is important that the House of Commons is updated, every five years, or once a Parliament or so, on exactly what is happening in longevity and that that report should be broken down by social class and by local authority area.

John Penrose: One of the things which became apparent during the Select Committee’s inquiry to which my hon. Friend just referred was that changes in life expectancy among different social classes—in particular among those who had been involved in heavy manual labour throughout their lives, and therefore frequently had shorter life expectancies—was something which the Government have recently been saying is to do with health inequality rather than something which they will try and cover in this Bill. However, the difficulty that was exposed in the report was that those health inequalities were some of the most intractable and difficult to deal with. It is all very well to say that health inequalities are not the subject of the Bill, but unless there have been careful discussions between the Department for Work and Pensions and the Department of Health about co-ordinated cross-Government activity to reduce those inequalities, many of the assumptions about longevity have a questionable basis and are increasingly at risk.

Andrew Selous: I am grateful to my hon. Friend. He is right. When I read the report earlier I noted those comments about health inequalities. I believe that the Committee looked at tying the increases in state pension age to the Government’s reaching their public service agreements target on health inequalities. This is a clause stand part debate and we cannot look at these issues in terms of departmental silos. That point was made by Help the Aged in its briefing. It spoke of the need to look at all these issues in the round. The increase in state pension age is related to longevity, but it is also related to people’s retraining opportunities.
Obviously the nature of work is very different for the 29 million or so people in employment in the United Kingdom. For just about all of us in this room, the heaviest thing we will pick up in our working week will be the calculator on our desks. For many of our fellow citizens, that is clearly not the case. They work in physically demanding environments, perhaps involving heavy manual labour, which clearly have an impact on their health. These are points that the TUC and others have made very clearly. We have to bear them in mind.

David Laws: The hon. Gentleman is giving us an interesting oversight of the problem. However, if he knew that these health inequalities and life expectancy inequalities were permanent and we could not narrow the gap, would he argue for people being able to draw their pensions at different ages, or for an earlier basic state pension age for people with lower life expectancy?

Andrew Selous: My preferred route would be that outlined by my hon. Friend the Member for Weston-super-Mare. It really is the function of the Department of Health to start tackling some of these health and education issues much earlier on. There is a point which my hon. Friend the Member for Eastbourne will no doubt want to come to on later clauses relating to rates of annuitisation. I believe that some of the pension companies have had discussions with the Department about annuitisation of pension benefits related to life expectancy. My preferred approach would be to ensure that we dealt with inequalities of life expectancy and health within the Department of Health.

John Penrose: There is a further point to make to back up my hon. Friend’s response. If one decides to adjust retirement age, annuity rates or anything else by social class, one should bear in mind that it is an incredibly nebulous thing to define. I would not like to be in the Minister’s shoes guiding that piece of legislation through Committee. I know that it is terribly fashionable among all parties nowadays to claim to be working class, but almost everyone would claim that they had been involved in heavy manual labour for their entire working lives in order to qualify for a better deal.

Andrew Selous: My hon. Friend is right. I do not pretend that the answers to these issues are simple or straightforward. That brings me back to new clause 21, which would require the Secretary of State to present a report every year instead of every five years, looking by local authority area and by job sector at
“the number and distribution of people over 60 seeking work and not being credited with contribution credits,”
and the training opportunities for all people
“seeking to increase the number of their qualifying years for receipt of a full Basic State Pension.”
If we are going to increase by eight and three years respectively the age at which women and men they can draw their pensions, it is essential for the House of Commons to have before it very detailed information on the unemployment rates for men and women over 60 who have another eight years or so to go before they can collect their pensions, and on the training and retraining opportunities without which they will find it extremely difficult to build up rights to a basic state pension.
Those issues were put before the Education and Skills Committee by the Age Unemployment Network and Help the Aged, who commented on the Leitch report on the UK skills gap. They thought that the report did not have enough to say about training and retraining opportunities for older people. They looked at people over 40—that is the right sort of age, because in the world of work it is not realistic to stay in the job in which one started until one’s late 50s or early 60s and then try to find something else to do for the last eight or 10 years of one’s working life. It will be sensible for people who think that they cannot work, for example, in a steel mill until the age of 68, to start planning to skill themselves up for other work, perhaps something less physically demanding, well before they get to the age at which they cannot continue their original work.
I will not go through the memorandum from Help the Aged in detail, but among its responses on the skills gap, it notes at paragraph 7 that
“The record of both employer and Government funded training does not inspire confidence in responsiveness to these challenges. All forms of funded training decline sharply from about 40 onwards”.
That is exactly the age at which we are going to have to start increasing very significantly the training opportunities for our fellow citizens if we are not going to deny them the chance of getting a basic state pension until they are 68. I have raised this point at a number of meetings on the issue with the Minister and others, but I have not yet heard the kind of joined-up thinking that we really need to hear from the Minister if our fellow citizens are to think that this is a fair settlement that will give them a fair chance of staying in employment throughout their working lives to the age of 68.
It is also worth noting something that I spotted on page 21 of the Library research paper. A change that will not occur under the terms of this Bill, but which will be brought in by way of regulation is that the old system—brought in by a Conservative Government in 1983 at a time of high unemployment—under which unemployed men aged between 60 and 64 were automatically credited with national insurance contributions, even if they were not seeking work, will be removed as a parallel measure. That is extremely relevant to clause 13, because people who might well have given up the work that they had done all their lives because they were just not able to carry on will not be credited with the national insurance contributions in the way in which they were before.

James Purnell: Just to clarify, before we get any idea that this is a measure that has not been scrutinised, the changes to auto credits have been an upfront part of the package all the way through. Any savings from that are re-invested into the overall reform plans that we are putting forward and are easily outweighed by the reduction in the number of contribution years to 30. So there is no hidden agenda there and it has been absolutely clear ever since the White Paper in May.

Andrew Selous: Well, what the Minister says is clearly correct, but none the less it makes the requirement on the Secretary of State at the heart of new clause 21 even more relevant because, in addition to increasing the state pension age, the removal of these auto credits will have an effect on that segment of the work force who concern me at present.
We also note, most intriguingly, that if we turn back to the Second Reading debate, the Minister’s boss the Secretary of State said on this general area that
“the Pensions Commission...suggested that the Government continue to make sure that pension credit was payable at 60. We are looking carefully at that proposal as one way of addressing people’s concerns”. —[Official Report, 16 January 2007; Vol. 455, c. 667.]
It shows that it is always important to go through Second Reading debates carefully, in particular anything said by the Secretary of State, for that again has a direct bearing on clause 13 and our discussions about making people work up to the age of 68 in order to get their pension.
The Select Committee, on which my hon. Friend the Member for Weston-super-Mare serves with distinction, looked at this area. I think that it was talking about guaranteed pension credit still being available from the age of 65, and was worried about the disincentive effect on working. I will also be interested to hear in the Minister’s response how the Department’s discussions are going, what careful study they have done of that area and what conclusions they have reached.
New clause 24 would require the Secretary of State to set up an independent Pensions Commission. I understand the reasons for that but I am not in favour of in effect setting up another quango. What would it cost to set up that commission? Those of us who stand for Parliament and seek public office should take the hard decisions. It is not up to us to shuffle off the requirement to take difficult decisions to an independent body. Indeed, it could be unsettling for an outside body constantly to review what is going on in the world of pensions. It is much more important for the information to be provided by the Secretary of State—whoever he or she may be at any future time—so that we, collectively as Members of Parliament, can look at it, weigh up the needs and assess them against other demands on the public purse. If the hon. Member for Yeovil wants to press new clause 24 to a vote I am afraid that my hon. Friends and I will not support him.
I am more sympathetic to new clause 25, which is similar to our new clause 21. I commend the hon. Gentleman on attempting to require the Secretary of State to consider flexible job opportunities. I tabled two new clauses that were not selected, one on flexible working and one on work opportunities for the disabled. Flexible working is incredibly important for older workers. Many of them are unable to work full-time. Perhaps we must get used to the idea that the peak of one’s working life in terms of hours worked and income is a few years before retirement. Those of us who have grown up under regimes of defined benefits have got used to the peak of one’s working life being at the point of retirement, on which the defined benefit pension was based. That will not be the case for a lot of people in future, and flexible job opportunities will allow people to stay in employment up to the age of 68. Some employers are excellent on that—Asda is one that is worth mentioning.
The need for a detailed analysis by each local authority to match training opportunities with people to enable our fellow citizens to stay in work up to the age of 68 is what interests me the most. I will listen with great interest to what the Minister says about it.

David Laws: As ever, the hon. Gentleman has given us an excellent overview of and introduction to the subject. I was delighted by a number of things that he said. I was particularly pleased to hear that people listening to my speeches can be expected to have a longer life expectancy, although they may not wish they did at the time. I was also pleased to hear that he expects this place to continue to zero in on a move towards the policy that my predecessors set out so clearly and effectively in 1909. That policy underlines the prudence of my party in fixing a state pension age that at the time was five years advanced of life expectancy.

Andrew Selous: I am sure that the hon. Gentleman is aware that in 1909 the life expectancy of those engaged in heavy manual labour was about 50—some 20 years short of 70, the age for which David Lloyd George brought in the state pension.

David Laws: As I said, that demonstrates the prudence of my party, although the hon. Gentleman raises a serious point, which I shall come to. Following his guidance, I also declare an interest—fortuitously, on a clause about the state pension. I am disappointed that he did not mention that, but I will be affected in the same way as him and will be slaving on until I am 66.

James Plaskitt: Not on this speech, I hope.

David Laws: No, although I could be persuaded, if provoked by the Minister, to move him on towards his retirement age. I noticed that he looked a little sheepish when I mentioned declaring interests, and I fear that he may be another Minister who is legislating on the matter without being affected himself.
The hon. Member for South-West Bedfordshire highlighted the three points that we are debating: the proposal that the state pension age should rise in the future; what monitoring and assessment mechanisms should be in place and whether there should be an independent commission to report on them; and how older workers can be encouraged to stay in the labour market rather than retire or become unable to work before the new state pension age comes in.
It is notable that although the increase in the state pension age will have a large, somewhat adverse affect on many individuals who will have to work for longer to get their basic state pension, it has surprisingly been one of the less controversial parts of the package. That is partly because of the strength of the case that the Pensions Commission put together and partly because there is consensus among the parties about the need to improve the architecture of pensions, which means being able to fund it. Perhaps it is also because the changes in the state pension age will not begin to have an effect until 2024, which is still some way over the horizon, so people are not focusing on it.
However, to give some credit to the Government and the Pensions Commission, the consensus emphasises that if we want to make such changes, the right way to do so is to have long lead-in times so that people can plan and adjust for the future. The experience of changing the women’s pension age in this country from 60 to 65 between 2010 and 2020 and of the changes going on with the pension age above 65, as well as the changes in other countries, such as the United States, demonstrate the case for making such announcements well in advance.
The hon. Member for South-West Bedfordshire highlighted one of the possible risks in increasing state pension ages in such a way when he talked about the inequalities between the life expectancies of different groups. He rightly pointed out that there are some pretty dramatic differences in life expectancy across the country, citing the case of Glasgow where, I think he said, life expectancy is still below the age of 70. That is a striking statistic given that life expectancies in some parts of the country are probably above 80, and it demonstrates the enormous health inequalities that need to be tackled.
I asked the hon. Gentleman whether he wished to tinker in some way with the state pension age or the pension system to give an advantage to people with lower life expectancies in terms of the age at which they can claim their pension, and he said that he did not want to do that. Broadly, we agree that that is the right approach. We are concerned that there would be too many complexities in trying to introduce some other finesse system and that there would be a difficulty in managing the effect on work incentives for certain groups. It is also not obvious that we have any state policy that seeks to deliver a set period of time for individuals in their retirement or a set amount of pension that we apportion to each. If we did, the consequences could be dramatic because women, who have a longer life expectancy, might suddenly find that people propose that they retire later or have a smaller pension pot. I cannot imagine people wanting to make that proposal, although I stand to be corrected.
As the hon. Gentleman said, the situation highlights the importance of Governments of all parties seeking to reduce the inequalities of life expectancy. To do that, it might be necessary not only to improve health provision across the country but to address some of the fundamental inequalities of income, wealth, work conditions and housing that without doubt lie behind the big inequalities in life expectancy. We must not lose sight of that in a debate that does not easily allow such issues to be aired.
Associated with the point about a higher state pension age are new clauses 21 and 25, which seek to encourage the Government to provide more opportunities for people beyond the ages of 50, 55 and 60 to stay in the labour market. We are all conscious of the enormous impediments of prejudice against people who are older and who seek jobs later in life. We are also conscious of the fact that a lot of people have difficulty in having the right set of skills later in life. We are aware that for some time a large proportion of the adult population above the age of 55 or 60 has dropped out of the labour market and the educational system and gone on to incapacity benefit. The concern is that some of that might have been disguised unemployment, particularly during the periods when we had high unemployment.
I received a parliamentary answer yesterday from the Under-Secretary of State for Work and Pensions, the hon. Member for Stirling (Mrs. McGuire), showing that in the cohort between the ages of 60 and 64, more than one in five are on incapacity benefit. That is only one area of concern in relation to people over the age of 60 who might not yet be in the labour market. Some  of the points that have been raised so far highlight that it would be one thing to increase the state pension age to 66, 67 or 68 but that it would be quite another challenge to ensure that people have the skills and support to stay in the labour market for that period of time.
The latest figures—the Minister will correct me if I am wrong—suggest that after a long period of ever-earlier retirement we appear to have passed a turning point when people are beginning to work for longer, as we might have expected. However, that may be due not entirely to a pre-planned, rational process but to people discovering as they near retirement that their pensions are not in as healthy a state as they might have wished. New clause 25 and new clause 21, tabled by Conservative Members, invite the Minister to say what the Government intend to do about that.

Andrew Selous: As the hon. Gentleman would agree, in respect of the will, or the need, to work later on in life, many of our fellow citizens are doing so. I understand that 9.6 per cent. of men over 65 and 11.1 per cent. of women over 60—386,000 men and 751,000 women—are in employment either because they actually enjoy working or because they need to work to supplement very meagre pensions. For example, they may be one of the 125,000 whose pension schemes have collapsed and who have no remedy. We need to bear that capability in mind when we discuss these issues.

David Laws: The hon. Gentleman makes a very good point. Obviously, some people already seek to work longer, as he said. Others may struggle to work up to the existing pension age and beyond and we must ensure that we cater for them.
The issue to which I want to draw attention now is not the increase in state pension age, which we support and which is relatively uncontroversial for us, or the need for more training and support for older individuals, which is also relatively uncontroversial; it is the more fundamental point about the need for an independent commission to keep these issues in mind in the future.
New clause 24 asks the Secretary of State to establish an independent pensions commission to consider three different areas: first, affordability issues in relation to state pension age and state pension provision; secondly, coverage of gender and carer issues and how the state pension provision is expanding; and thirdly, means-testing and its impact on saving.
I was disappointed that the hon. Member for South-West Bedfordshire did not give our proposal more of a fair wind. He said that he was worried about two things, one of which was cost. He seemed to accept the Secretary of State’s line that there would be enormous costs associated with setting up a vast quango. Provided that it was a small and effective group, as the Pensions Commission was, the cost should not be disproportionate. If there was a cost to bear as a consequence of the new clause, and it meant a greater degree of continuity and rationality in UK pension policy in the future, that cost might be quite small.
The hon. Gentleman said that he did not want an outside body to dictate pensions policy to Members of Parliament and I agree with him. We do not propose a body that would be able to dictate to Parliament or to the Secretary of State what proposals to introduce; that would be entirely wrong. Parliamentary sovereignty should remain on those issues, which should be a matter for the Secretary of State. If an independent pensions commission were to make recommendations, it would be difficult to be sure that it would take into account the different factors that Government Departments have to consider when they formulate policy, such as the affordability of their proposals in relation to other Government policies. Therefore, I would not want there to be an automatic presumption that, if an independent pensions commission of this type determined that there was going to be an increase in life expectancy in the future and that it would have a particular impact on the cost of the state pension architecture, there should then be an automatic feed-through that our state pension age should go up by a certain amount. That would be wrong, because there could be other things happening within Government expenditure that might lean the other way. People would be nervous if they felt that we were establishing some kind of escalator process, in which every time they felt that they were getting close to state retirement age some new commission would report and move it up another year or two. I am not thinking of a process as automatic and as unthinking as that.
However, by rejecting what was after all in broad brush terms one of the recommendations of the Pensions Commission, we may be making an important mistake. I am not yet persuaded that what the Government have in mind, with some form of periodic review, will replace the type of proposal that the Pensions Commission itself was making for good reasons. I may have misunderstood the extent of what the Government are offering, which, when the Minister responds, may be a bit more inviting than I assumed. If that is the case and I have missed something in what the Government have said, I apologise.
The Pensions Commission has been astonishingly effective in creating a consensus between the three parties and, to a large extent, with the pension policy groups outside Parliament, on the shape of pension reform. Before the last general election there was no party proposing an increase in the state pension age, but there are now at least three parties, including the minority parties. There was no party, which I can recall, that was suggesting that there should be a compulsory employer contribution, of the type that we now have. There was no party that was suggesting that the earnings link could be permanently restored. There was no party proposing auto-enrolment into personal accounts. There was no party proposing precisely the formulation for crediting into the state pension and increasing coverage that we now have in the Bill.
The pensions commissioners, in binding that consensus together, have done an outstanding job, which they achieved because they were seen to be genuinely independent, even though the commission was established by the Government, and able to bridge the differences of philosophy between the parties, to the extent that there were any. Their figures and statistics have been extremely impressive. There has been a feeling on the part of all the main parties, therefore, that there was pressure to move away from the usual party political debate and to engage with the serious proposals made.

Andrew Selous: The hon. Gentleman accepts the case for a pensions commission when we were looking at a once-in-a-generation change of the pensions system in this country. I agree that the Pensions Commission did the most fantastic job and shifted opinion markedly, as he outlined. However, does he not think that an ongoing independent pensions commission would lead to uncertainty? The public now need certainty that the agreement will last—for a generation, indeed—and that may be a reason not to have the body continuing into the future.

David Laws: I understand the hon. Gentleman’s point. He is right that some of the really important decisions have been taken by the Pensions Commission and agreed between the different parties. However, the commission itself and Lord Turner did not take the view that the consensus could be well maintained over time without the presence of such a body—I am about to refer to the report. Intuitively, that sounds sensible to me. If we went out on to the streets and asked the men in the pub in Yeovil whether they would be more confident of the pensions consensus being glued together in the future by continuing the usual party political processes, they would say that they would not be reassured at all. I think that if they were offered instead the prospect of a credible independent commission continuing to report, to impose a discipline on parties that sought to challenge the consensus, and to supply information about issues that different parties might not particularly want to be aired but which needed to be aired in the interests of honesty, there would be a much greater chance of keeping some sort of coherence and underlying stability for the pensions consensus. That was clearly the view of Lord Turner and the other commissioners, who made the case powerfully for an independent commission in their second report.
In the final report, the commissioners say on page 42 under the heading of “Securing and maintaining consensus”:
“British pension policy for decades has been bedevilled by a lack of continuity.”
They point out that that has not been the case in many other countries, even when they have pension systems of our kind. They go on to say that
“over the long-term the likelihood that consensus can be maintained, and that the inevitable adjustments to policy can be made with continued cross-party support, could be improved if debates on pension policy were informed by independent analysis of key trends in demography and pension provision. We therefore reiterate our recommendation, made in the Second Report, that a permanent Pensions Advisory Commission should be created, charged with monitoring developments and laying before Parliament every three to four years a report describing relevant trends and spelling out the unavoidable trade-offs which result.”
In figure 18 on page 43, the commissioners set out the types of issue that they want the independent commission to cover, including life expectancy and changes in the future, the trade-off between public expenditure and state pension age, gaps in life expectancy by socio-economic groups and how they are changing over time, the latest trends in private pension provision, and an analysis of trends in retirement ages and employment rates among older people—in other words, many of the issues that we are dealing with in discussing these new clauses.
I have to say, as objectively as I can, that I am more persuaded by the case made by the commissioners in favour of that type of permanent independent body reporting on a periodic basis than I am by what I understand to be the Government’s alternative. The Secretary of State was quizzed about the issue by the Select Committee on Work and Pensions on 7 June. He said that he was not in favour of an independent pensions commission and he has rubbished that before on the basis that it would be another quango. However, he acknowledged that if periodic reviews could be done to a specific timetable, that would be acceptable.
In their response to recommendation 47 in the Select Committee’s comprehensive report—I am referring to the section entitled “Uncertainty and the need for more research”—the Government welcome the Committee’s comments and talk about having “future periodic reviews” dealing with future life expectancy. My concern is that it sounds as though that will be controlled by the Government; it will be at the discretion of the Government. I do not know how many issues the periodic reviews will cover—whether it will be only life expectancy or whether it will be all the issues that the Pensions Commission wanted covered. One wonders whether that type of process will have the same credibility and impressive independent analysis—and therefore exert the same pressure on the political parties to stay together or to respond to the parts of the pensions consensus that are not working—as Lord Turner proposed.

Andrew Selous: Before the hon. Gentleman concludes his remarks, will he tell us what would be the maximum annual cost that he would budget for a pensions commission?

David Laws: I do not have a figure to pick out of the air, as the hon. Gentleman can imagine, but I would certainly have in mind a very small number of people—similar to the number of commissioners in the Pensions Commission. I imagine that to have a group of that type monitoring the situation and preparing reports—which would be issued periodically, every three or four years, as the Turner commission suggested—would not be particularly expensive. If it would help the hon. Gentleman, I am happy to table a question to the Minister, or perhaps he can tell us today what sort of costs would be involved. However, I would not get too hung up on the affordability of a little pensions commission quango. If we are really that worried, I am sure we can find some existing quangos to cull to save the money.

Nigel Waterson: I have been delighted to listen to the hon. Gentleman as his plans for a semi-detached quango begin to unfold. Will he at least undertake that his party would refer any of its proposals to the commission, to ensure that there was an independent view of their likely cost to the taxpayer?

David Laws: I am not sure whether I understood the hon. Gentleman’s point. He wants the new body to do the kind of costings work that the Pensions Commission did. That is a very good idea, and I welcome it. I notice that despite the excellent work of the Pensions Commission, the Government have been using all sorts of numbers for the cost of different policy options. Sometimes, apparently, the citizen’s pension will cost £9 billion; the other day, the Secretary of State started the Second Reading debate by saying that it would cost £10 billion; by the latter stages of the debate, it was something between £20 billion and £30 billion. The debate needs to be informed by something better than the Secretary of State pulling figures from the air.
I urge that we do not get too hung up on whether we spend a million quid on a few people doing such work. If the prize of that cost was some kind of future coherence and stability for our pension system, which involves the investment and allocation of hundreds of billions of pounds, spending that bit of money for a few people to oversee the system would look like the biggest bargain possible.
In a helpful briefing note issued last year, the Pensions Policy Institute set out different options for establishing a commission. It set out four types: a general advisory commission, one that would make recommendations, one that would set policy and one that would be for public information purposes. What we have in mind is definitely not simply a public information role such as that of the New Zealand Retirement Commission, and certainly not a policy-setting role that would oblige the Government to act in particular ways. We have in mind a commission with a general advisory role that might well make recommendations, on which it would ultimately be for the Government and Parliament to make a decision.
It is a pity that the Government have not taken on board that important proposal from the Pensions Commission. They have adopted a lot of the Pensions Commission’s report and worked hard to secure the consensus that we have so far. There have been bogus arguments about quangos and more serious arguments about Governments not liking to give away power—they do not like to be criticised by outside bodies or hear that means-testing or some other controversial aspect of policy is not working. I detect a disappointing tendency on the part of the Government to run back to the usual element of pensions policy, which is to keep it in the hands of the Government of the day and one party. That has not proved a successful way of running the pensions policy of this country since the magnificent Liberal Government of 1909.

James Purnell: That last note was slightly harsh, given that we have tried to have a wide range of seminars on exactly the issues that have been raised about the policy and about the private savings side of what we are doing. We have published documents on our pension credit forecasts, setting out all the assumptions, and on financial incentives to save. We have engaged very much with people’s concerns and when possible tried to allay them by publishing extra information.
I think I recall answering recently a parliamentary question tabled by the hon. Gentleman about all the independent research that had been done on both White Papers, which listed a number of independent consultancy reports. Given what he has just said about the very reasonable budget for the quango that he proposes, I am looking forward to his shredding his press release on the outrageous costs of those—[Interruption.] Exactly. He is obviously comforted; he obviously thought that it was not enough and should have been more—but there we are. I am glad that that particular PQ will not be boomeranging back in the form of a Lib Dem press release.
One reason why we want periodic reviews is because of the good political consensus that has been achieved on the reforms. The best way to maintain that consensus is through the political process rather than by subcontracting policy to an outside body. We agree with the hon. Members for Yeovil and for South-West Bedfordshire that the Turner commission’s work was exemplary. However, there is now a framework that we can hope to maintain for the next few decades, and there is a danger that an independent commission would constantly uproot, question or cause uncertainty about the stability of the framework.
I shall just respond to one point raised by the hon. Member for Yeovil. There was one body calling for automatic enrolment, a more secure state pension and the locking in of our progress on pensioner poverty before the last election. He does a disservice to his erstwhile colleague, Lord Kirkwood, who chaired a very good Select Committee inquiry, after which it recommended all those measures. The hon. Member for South-West Bedfordshire was also involved in that.
Before I speak to the clause, I thank hon. Members for tabling new clauses 1, 21, 24 and 25, which provide us with an opportunity to discuss the important issues related to the rising state pension age. That change is the hard choice that makes the rest of the Bill possible, so I shall begin by restating the case for it. We live in an ageing society. While the state pension age has remained unchanged for the past 50 years, average life expectancies have changed. In 1950, a man of 65 could expect to live 11 years longer, but that expectancy has nearly doubled to 20 years longer today. The same figure for women has also increased significantly in the same period from 15 years to 23. Without reform, the number of pensioners would rise from 11.4 million today to 17.5 million by 2050.
We are not alone in facing this challenge, and state pension ages are increasing in other developed countries. In the US, the age at which people can draw a full pension will be 67 by 2027—sooner than here. In Europe, several countries have already increased the pension age, and the German and Danish Governments recently proposed raising the pension age in those countries from 65 to 67 by 2029 and 2027 respectively.
Based on current projections, in 2050, men of 65 will have an average of 24 years of life ahead of them, and women 27 years. The core of the debate has not been about the principle of increasing the state pension age, but about its effect on the parts of the population that have a lower life expectancy. The reasons for those differences in longevity are complex, and there are many causal factors. The differences exist within all income groups, although below-average life expectancy is, of course, more prevalent in lower socio-economic groups and, therefore, in more deprived areas.
Those inequalities are not acceptable in a modern society, and we are working hard to tackle them. I want to reassure the hon. Member for Weston-super-Mare that the Government do have a framework for tackling health inequalities—the public service agreement target. The Department of Health has the lead responsibility on that, but we support it in that work. He will understand that these are long-term issues that are quite difficult to shift given the cultural and behavioural roots of health inequality, but some progress is being achieved. The Department of Health reports that in 20 per cent. of the areas with the worst health and deprivation indicators, we are on track to meet the target. In a further 40 per cent. of areas, we are on track to meet our target for either men or women. More progress is needed, but the indicators are going in the right direction.

John Penrose: I am sure that the Committee is pleased to hear of the progress in that important area. Do the Government have any view on how long it will take at current rates of progress to even out the inequalities in life expectancy that we talked about earlier?

James Purnell: I cannot tell the hon. Gentleman that off the top of my head. I believe that the targets take us to 2010, but they are not to eradicate health inequalities, which would be a very significant achievement. The debate is sometimes framed in terms of the gap between the highest and lowest socio-economic classes, which reflects one part of the debate but not all of it. Those two classes—the very, very richest and the very, very poorest—represent only 10 per cent. of the population. They are relevant in that they indicate the existence of groups that are much more deprived than the rest of the population, but the difference in life expectancy between manual and non-manual workers, for example, is significantly less. That gap is two and a half years, as opposed to five years between the extremes of social classes I and V. I hope that that provides some interesting context.

Meg Hillier: I am delighted to hear the Opposition’s concerns about health. In my constituency, men’s life expectancy is six years shorter than in Kensington and Chelsea, as the hon. Member for South-West Bedfordshire mentioned, but does my hon. Friend agree that there is an important “but”: the constituency includes a lot of migrants to this country who have lived physically difficult lives in other countries, perhaps without adequate health treatment? Although I would not want to be such a pessimist as to say that we will never meet some of the targets, some of the people over 50 in my constituency have particularly challenging health needs because they have not benefited from the national health service, and all that it can provide, for most of their life.

James Purnell: That is absolutely right. This debate is closely tied to deprivation. There are wards in Kensington and Chelsea that have a lower life expectancy than some wards in Glasgow. People in the richest parts of Glasgow live longer than those in the poorest parts of Kensington and Chelsea, so the debate is slightly more complex than it is sometimes given credit for.
Our core point is that those health inequalities need to be addressed, but the way to do so is not to adjust the state pension age. The hon. Member for Weston-super-Mare made the point clearly that having different state pension ages for different socio-economic groups might lead to perverse incentives, although I think that I might face hurdles at the interview stage if I tried to squeeze myself into a lower state pension age category.

John Penrose: You are not working class?

James Purnell: Exactly. The question is not whether there are health inequalities and whether they should be addressed: I think that all parties agree that there are and that they should be. The question is whether our proposals are proportionate and fair, given those inequalities.
As has been mentioned, the Office for National Statistics does not produce projections of life expectancy broken down by socio-economic group. We therefore cannot predict the development of trends with the same degree of confidence for individual groups as for the average. Analysts in the Department for Work and Pensions have estimated life expectancy for manual and non-manual workers, based on past trends that have been provided by the ONS. With that qualification, extrapolating from those data in line with ONS projections, it appears that by 2050 we would see an increase in life expectancy at 65 even among manual workers, that is more than the three years by which we propose to increase the state pension age.
I can say slightly more about variations in longevity—

John Penrose: Will the Minister confirm that manual workers’ projected increase in longevity will mean a narrowing of the gap in life expectancy between manual and non-manual workers by 2050?

James Purnell: I think that that is just an extrapolation from what has been happening in the past few years, but I am happy to correct it. What the statisticians have done is to take the past evidence and project it forward.

John Penrose: Is that narrowing the gap?

James Purnell: That is narrowing. It means that there has been a narrowing and if it were extrapolated forward the narrowing would continue to happen. We can say a little more about the difference in longevity between areas of the UK.

Sally Keeble: May I point out to my hon. Friend and perhaps to Opposition Members that similar work on health inequalities—the Black report—was carried out and was suppressed by the Conservative party when it was in government?

James Purnell: That is a very good point. It is good to see that attitudes have been changed by our period in government and that people are trying to draw on our consensus. So by 2046 when the transition to 68 will be complete, projections indicate that the geographical gap will have narrowed. So, for example, taking Scotland, which is often where the debate starts, the average male life expectancy at 68 will have risen to 20.1 years, 1.3 years longer than it currently is at 65. That is not the average life expectancy for everyone but the life expectancy for people who reach the state pension age at that time.
That presents a reduction in the current differential at state pension age of about six months. So if those projections prove correct, men in Scotland will on average see higher gains than men in England over the next 50 years. As with the figures for the UK as a whole, by 2046 there is no reduction in the numbers of people in constituent countries projected to survive to a higher pension age at 68 compared to the numbers that currently survive to age 65. More would be reaching 68 under the new proposals than reach 65 today.
So if we draw it down to specific localities, which is what the hon. Member for South-West Bedfordshire asked me to do, although we do not have projections at the local level, the story is still one of increases in life expectancy in all areas—even in Glasgow, which has the lowest life expectancy of any local authority in the UK. Over the past two decades, life expectancy for men aged 65 increased by just under two years. For women, as for women elsewhere, life expectancy increased at a slower rate, by a year and four months, but a 65-year-old Glaswegian woman is still likely to live three and a half years longer than a Glaswegian man.
It is worth placing in context something that the hon. Member for South-West Bedfordshire said. It is true that the average life expectancy in Glasgow is 69.9 years, but the Pensions Commission went to some lengths to explain that using the figure for life expectancy at birth underestimates life expectancy at pension age. People who reach pension age expect to live longer than 4.9 years in retirement. So life expectancy at 65, rather than at birth, is currently 13.4 years and, as the Pensions Commission explained, that is an underestimate. People who reach 65, on a snapshot basis, have a life expectancy of 13.4 years.

Nigel Waterson: Will the Minister give way?

James Purnell: I will finish my point and then the hon. Gentleman can leap to his feet. There is a better measure, which is the life expectancy of the cohort; that factors in expected improvements in longevity and gives a true estimate of about 16 years. So people who reach 65 in Glasgow today have a life expectancy of about 16 years; that is, they live to 81.

Nigel Waterson: I have a great interest in the subject, not only from a personal point of view; we could all declare that interest, but I have a constituent who is 110. Looking at the issue from a cohort point of view, it is fine looking at Glaswegians who make it to 65 and are going to live for another 12 or 13 years, but what about the ones who have not made it to 65? I appreciate that taking the figure at birth might be very misleading nowadays, particularly given—I hope—health improvements. However, Scotland spends 20 per cent. more per head on health than England, yet has the worst health outcomes in western Europe, although I guess that that is for another day and another Bill. How do we square off the fact that many of those people will not have reached 65 and that longevity figures at 65 are by definition somewhat misleading?

James Purnell: As I said earlier, more people will reach the state pension age under the proposals, even once it is extended to 68. More people will reach the state pension and people will be living for longer after that as well. The hon. Gentleman will be interested to know that, for the first time, the Scottish Executive have set a target of increasing the rate of improvement in inequalities, measured across a range of indicators, in the most deprived communities by 15 per cent. by 2008. That includes coronary heart disease, cancer mortality, rates of adult smoking and smoking during pregnancies, which I am sure will reassure him.
Although I accept that there are limitations on what the current data can tell us, I am confident that our timetable for change will not disproportionately affect those with below-average life expectancy, as compared with their position today. As a further safeguard, we have made clear our intention to commission periodic reviews of the evidence on life expectancy, to ensure that our timetable remains on track. That will include consideration of whether the qualifying age for the guaranteed pension credit should remain at 65 after 2024, which relates to the point that the hon. Member for South-West Bedfordshire made in his speech.
I wish to clarify what the Secretary of State said. He was not saying, “We’re thinking about it because we haven’t made up our mind now, and we’ll come back in the next few months”. The point is that the situation in 2024 might be very different from the situation now. We do not know what progress will have been made on health inequality or deprivation. We therefore made it clear in the May White Paper that the decision whether pension credit should remain at 65 as the state pension age increased should be considered closer to the time. I hope that that gives the hon. Gentleman the explanation that he was after.
The hon. Member for South-West Bedfordshire might be reassured to know that any man or woman between the ages of 60 and 65 who seeks work will continue to be eligible for credits, as now. Auto credits were for men aged 60-plus, whether they were seeking work or not. The hon. Gentleman mentioned that auto credits were introduced in the 1980s by the Conservative Government. Some say that they were introduced to reduce the unemployment figures at the time, although I would not want to comment on that.
The intention behind new clause 1 is sensible. Trends in longevity are important, and any responsible Government would want to keep them under review. However, as the hon. Gentleman is aware, the Government Actuary already has a statutory duty to carry out a review of the national insurance fund every five years, the starting point of which is an analysis of demographic trends. That report—the Government Actuary’s quinquennial review—is laid before the House in the normal manner. Indeed, we can expect the next report by 2008. That means that subsequent reports will more or less meet the hon. Gentleman’s proposed timetable. I therefore see little value in imposing another legislative requirement to review trends in longevity.
Raising the state pension age is also a key part of the Government strategy to balance time spent working with time in retirement, which brings us to paragraph (a) of new clause 21. We agree that it is vital to understand the characteristics of older workers so that we can constantly improve our policy of supporting them in seeking work. I therefore hope that the hon. Gentleman will be reassured to know that the “Older Workers: Statistical Information Booklet” is published biannually by the DWP and is freely available from the Government’s Age Positive website. Again, I do not see a very good reason for legislating to introduce another report. I hope that on those two particulars the hon. Gentleman is assured that there are already Government research publications that will address those needs.
Paragraph (b) of new clause 21 and the thrust of new clause 25 relate to training opportunities. The hon. Gentleman is quite right to raise that issue; it is important not only in the context of raising the state pension age but in the general economic context in any case. Even if we were not raising the state pension age, the issue of helping older workers to work for longer would be important, partly because people tell us that they want to, and partly because it is crucial if we are to reach the 80 per cent. employment rate that the Government have set as a target. About half of the recent increase in employment has been made up of older workers, so that trend is already growing, but we want to work on what more we can do to support them.
A significant amount of work is going on in this area, such as the Opportunity Age document that was published before the last election, and chapter four of the White Paper that was published in May. We keep our mind completely open on such matters and if there are particular policies that the hon. Member for South-West Bedfordshire thinks that we should pursue, we are happy to do so. We keep the policy area under review, and we are happy to hear any suggestions from him or from stakeholders.
I do not think that there is a magic bullet that will help older workers to stay in work. There are things that Governments can do, but it is just as much a matter of cultural change. One can legislate on age discrimination, but changing the attitudes of employers is just as important, as is changing individuals’ attitudes. I agree with the hon. Gentleman’s overall point about the need to help older workers to work, and I hope that I have set out by mentioning those documents, and the implementation of the Leitch review, that we have an important range of policies in this area, which we are happy to continue to discuss with him and others.
New clause 25 would require the Department to produce reports on flexible job opportunities for workers aged over 55. That is an important issue, but the Government are publishing several studies on flexible working, the most recent of which was the third work-life balance employee survey, the executive summary of which was published by the Department of Trade and Industry last July. There is a range of publications in this area, but—this is the point where I will try to be consensual so the hon. Member for South-West Bedfordshire may want to listen to what I say—

Nigel Waterson: It will be in Hansard.

James Purnell: It is always better in the telling, when you are there, than it is reading it dry on the page.
It is important that we collect the right information in order to ensure that the policy remains correct in the future, and as the hon. Member for Yeovil knows, we do not think that the right way of doing that is through an independent commission. There is a danger that that would undermine the stability of the proposals, rather than improve it. We agree that much of the evidence on which we have based our reforms will have to be kept under review. We have already announced a review of generic advice led by Otto Thoresen, which we are undertaking with the Treasury.
It is important to ensure that we collect the right information in a more general way to ensure that the policy remains right for the future. The best way to do that is not to set in legislation exactly what should be reviewed in the future and when that should take place. If our predecessors had tried to set out in 1982 whether it would be right to have a Pensions Commission in 2002, that would not necessarily have been a very effective exercise. Instead, we want to consult a range of stakeholders on what evidence needs to be kept under review to ensure that we have a first-class evidence base. We propose to consult later in the year, and we will then publish our plans on how we intend to build and maintain a credible evidence base that will support future policy considerations on a range of issues. I hope that the hon. Member for Yeovil will take that in the spirit in which it is intended—a reassurance based on the argument that he and the hon. Member for South-West Bedfordshire made.

David Laws: The Minister is, by rejecting this proposal, rejecting one of the proposals put forward by the Pensions Commission itself to sustain this consensus in the future. Will he tell us which arguments he has deployed to Lord Turner in rejecting this key plank of his recommendations?

James Purnell: Lord Turner and I have not discussed this specific detail. We have discussed the overall thrust of the proposals, and he is very happy with the way in which we are implementing this aspect, and the private pensions side, of what he proposed. Were we hypothetically to discuss that proposal, I would say that, because his commission has achieved such a high level of consensus, we believe that progress can now be achieved through the political process rather than through a standing commission, which would be difficult to maintain in practical terms. As I said, setting out now what it should consider in the next 10, 20 or 30 years would be a heroic task. We believe that the right way to deal with the matter is to have periodic reviews of individual issues rather than a standing commission, which might keep the whole of the policy framework in play.

David Laws: I am grateful to the Minister for being so patient. He has said that he will consider the issue and consult on it, but can he indicate what the Government’s thinking is now? In particular, how often would periodic reviews occur, who would do them, and would they simply consider statistical issues or would they result in policy recommendations?

James Purnell: We shall be consulting later in the year on that. I do not want to prejudge the consultation, but the general principle is very much the one that the hon. Member for South-West Bedfordshire set out. We believe that the trade-offs are for politicians to make, and that the situation is not analogous to that of the Bank of England, where a particular decision can be made within a policy framework. Decisions that go to the heart of the policy framework should be taken by politicians. We think that that is right.
I hope that I have reassured the hon. Members who tabled new clauses 1, 21, 24 and 45, and I urge them not to press them. If they do, I shall urge my colleagues to reject them.

Andrew Selous: I have listened carefully to the Minister’s response to the debate. On the basis of what he said, I am prepared to withdraw new clause 1, because he has satisfied me that it replicates an existing requirement in respect of the work of the Government Actuary’s Department.
However, I am not satisfied on new clause 21. I respect the fact that the Minister said that some of the work had been done, but his response on paragraph (b), which deals with training opportunities, was particularly poor. I understand that it is not part of the Minister’s departmental remit to deal with training, but the need for co-ordination in the area is paramount, and the opportunity to knit the work together and review it coherently on an annual basis in conjunction with the Department for Education and Skills would be valuable for the Department. Therefore, I serve notice that I shall ask my colleagues to vote in favour of new clause 21 at the appropriate time.

David Laws: I am grateful to the Minister for his detailed and, as ever, patient response, and I accept the points that he made on a couple of the issues around the edges of this debate. I am still genuinely disappointed that he will not take up the Pensions Commission’s recommendation of a body to give advice to politicians on how the pensions system should develop. I can easily anticipate the thinking in Government and in Departments about such issues. I can understand the temptation and pressure, once the commission has been established, made recommendations and produced what appears to be a consensus, to repatriate policy and to avoid a situation in which a standing commission appears to be monitoring the effectiveness and success of Government policy, but I think that we will be less successful in making the pensions consensus stick and making the policy work if we do not accept Lord Turner’s recommendation. I hope that there will be further debate on it in another place, and that the arguments will be more convincing than mine appear to have been. As I do not detect upwelling support throughout the Committee, I shall not press the new clause to a vote.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Schedule 3 agreed to.

Schedule 1

State pension: consequential and related amendments

James Purnell: I beg to move amendment No. 57, in schedule 1, page 30, line 5, leave out paragraph 21.

Roger Gale: With this it will be convenient to take the following: That this schedule be the First schedule to the Bill.

James Purnell: Unless there is a great upsurge of interest in the technical nature of schedule 1, all that I intend to say is that Government amendment No. 57 is a minor technical amendment. If any Member is fascinated by why it is necessary, they can catch me afterwards.

Amendment agreed to.

Schedule 1 agreed to.
Further consideration adjourned.—[Mr. Heppell.]

Adjourned accordingly at five minutes past Six o’clock till Thursday 1 February at ten minutes past Nine o’clock.